Thursday, March 11, 2010

Spend! Spend! Spend!

I did a short turn on Sky News yesterday alongside Will Straw of Left Foot Forward. Incredibly, he seemed to be advocating that far from cutting public expenditure, we should be borrowing and spending more. He reckoned there was some sort of 'slush fund' available to pump money into various sectors because unemployment hadn't reached the heights many people thought it might. So just because the government hadn't spent money on unemployment benefit, it could now spend this money on other, as yet undefined, things.

And there you have the difference between the left and the right. If it were me, I'd use the money to reduce borrowing, whereas Will would spend, spend, spend. And we all know where that gets us.

25 comments:

What money?? It's an illusion. The money is just what the government has NOT had to spend on unemployment (like, oh yeah!). It did not exist before and still doesn't. So it can't be spent again on anything else. You don't pay down debt with more debt - unless you're my daughter.

I flicked the Vs at the open-topped double decker that came down haymarket on Tuesday complete with megaphone sporting harpy protesting the inevitable cuts in public sector staffing levels. If I'd have had a rock I wouldn't have been able to resist the urge to throw it.

Surely all these socialists can't have been dropped on their head as babies. So, it must be something genetic. the polls would suggest that 30% of the population are retards; and a good proportion of these are imports.

Same on LBC today. they were discussing the death tax and who should have to pay. Obviously its the rich as the poor have no money. The debate ranged from supporting feckless to wealth creation to toffs should pay for everyone.

Not once did anyone ask if the money could be raised by reducing other spending commitments.

Why does the government finance public sector pensions at all? Introduce a private pension scheme.That would raise enough to eliminate the need for tax rises.

End some wars? Quangos and charity spending in the billions.The BBC licence fee spent on healthcare instead of tv would buy a fair bit of care. Cut our debt interest payments over 20 years so the money on debt repayment goes into health care. A private healthcare system that encourages the richer to not use up NHS resources at all. A pay as you go rather than pay as you've gone approach.

Doesn't make much difference what the arguments are but the idea of having a fixed budget and allocating priorities from that finite sum never even came up.

The "unemployment" figures are one thing. The actual number of people who might be working, otheres who ought to be working, and those who have been dumped out of the labour market on age grounds would come to a very much higher figure and are all on one form of benefit or subsidy or another.

Straw's is a respectable view. He is arguing for a second stimulus package -- Paul Krugman, among others, spent much of last year arguing that the US needed exactly that. As I recall he only stopped because it didn't seem politically possible. Many economists also oppose the idea, it's true, and I am not sure. But it is not a simple matter of "there's no money left".

The reason for this is that the economy is still quite weak. If further fiscal stimulus prevented the economy from slipping back into recession and allowed a recovery to take hold, GDP growth would be stronger in the future, the government would receive more tax revenue, and the deficit would be smaller. On the other hand, too much fiscal stimulus would result in an excessive debt burden. The question is, how much is the right amount?

Think of the national debt not as credit card borrowing for the purpose of consumption, but as a loan of the type that students in the US take out in order to get through college. They need to borrow enough to get a good degree, so that their future earnings more than offset the student loan; but if they borrow too much, or spend too long in education, they will start their careers with an unmanageable burden of debt. This is not a situation where all debt is bad; it is a situation where it is important to borrow enough, but no more.

The first stimulus was obviously necessary to stave off a depression, and the fact that so many countries had one is a sign of the progress that economics has made since the 1930's (and the fact that the Conservatives didn't seem very clear on the issue has made me permanently suspicious of George Osbourne). Now the authorities have the harder task of striking the right balance between stimulus and debt. Nobody is obviously right in this debate, and you can't rely on your ideology to guide you.

Phil makes the point well - but you can bet there will be a give away based on this non-money in the budget.

Indeed Bill Quango - why do not we become a more wealthy country that could afford to pay for the good things it desires.

That was Brown 13 years ago - but as his absurd policies have bitten the dust one after another all that he has left is to tax and spend tax and spend tax and spend. A policy designed to destroy wealth creation.

The "progressive" left have never understood money. They hear the "its just tokens" bit then stick their fingers in their ears and go "la la la" to block out the "underwritten by things of real worth."

It's a slow day in a little northern town. There's a chill in the air and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit..............

On this particular day a well to do type o' guy is driving throughTown. He stops at a local hotel and lays a £50 note on the desk saying he wants to inspect the rooms as he wants to spend a night in the town..

As soon as the man walks upstairs, the hotel owner grabs the £50 and runs next door to pay his debt to the butcher.

The butcher takes the £50 and runs down the street to settle his debtto the farmer.

The farmer takes the £50 and heads off to pay his bill at the supplier of his animal feed.

The guy at the Farmer's Co-op seizes the £50 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her "services" on credit.

She in turn dashes to the hotel and pays off her room bill with theHotel owner.

The hotel proprietor then places the £50 note back on the counterto await the return of the well to do guy.

A few minutes later the guy returned to the desk, saysthe rooms are not satisfactory, pockets the £50 and leaves town.

No one produced anything. No one earned anything.

However, everyone concerned is now out of debt and now looks to the future with great optimism.

And that, dear readers, is how the United Kingdom's Government isconducting business today.

JB (3:55)- the student loan is a good analogy, and you're right that there's a respectable school of thought calling for more stimulus.

The trouble is that Straw is mainly using the argument that causes so much waste in both the public and private sector - "we've got money left in the budget that we weren't expecting, so let's spend it". The only thing that should determine spending is the long-term good of the country, not how bad you are at budget forecasts.

I left a lengthy reply over at Will's site before coming here, but I made a similar point about the need to consider the long-term effect of a debt load versus short-term stimulus.

I've had some further thoughts over on Will's site. Perhaps the most provocative idea is extending the OE analysis to the debt in general, and guesstimating that every £10bn borrowed removes ~50k jobs from the economy. So Will is welcome to borrow any number of £10bn's - but every time he does so, he puts the entire working population of Blackburn on the dole for life. So he better make sure that he spends that £10bn in ways that will create at least 50,001 jobs in perpetuity.

Look at it another way, and for as long as we are running a deficit, every £200k spent by government takes away someone's job, forever.

It's helped clarify my thinking on the deficit, anyway. There's nothing wrong with running a deficit, even increasing it is OK - as long as you have a relentless focus on the long-term effects of the spending, and compare them to the long-term costs of the borrowing. Common sense really, but it's taken me two long posts to get there.